NEW YORK (Reuters) - Bank of America Corp (BAC.N) has clinched a deal to provide inventory and working capital financing to the biggest oil refinery on the East Coast, replacing JPMorgan Chase & Co (JPM.N) with a revamped arrangement that excludes physical supplies, according to a source familiar with the deal.
The agreement with Philadelphia Energy Solutions (PES), sealed on Tuesday, will give Bank of America’s commodities business one of the biggest such financing arrangements in the country, but excludes the physical oil trading and logistics operations that were part of the JPMorgan pact, the source said.
In the new deal, PES will take over its own logistics and trading, a move that should help mitigate regulators’ concerns about the risk of banks facing liability over an oil spill or other environmental catastrophe involving commodities.
The terms and full scope of the deal were not available.
Bank of America, PES and JPMorgan declined to comment.
Giving up the PES deal was part of JPMorgan’s year-long effort to divest its physical commodity trading operations amid mounting political and regulatory scrutiny. Late last week the bank sold the bulk of the business to trading house Mercuria for around $800 million. That deal did not include the PES contract, a landmark deal for JPMorgan back in 2012.
PES, a joint venture of Carlyle Group LP (CG.O) and Sunoco Inc [SUNO.UL], had been seeking greater logistical flexibility that would allow it to take more control over its crude supply and product sales with a financier that would not compete in the trading space.
The transaction is the latest sign that even as U.S. banks pivot away from physical commodities trading, they are still finding ways to participate in the global raw materials market.
Bank of America will ensure payment to the refiner’s suppliers and help it hedge its price risk, generating revenue through financing fees. It is a lower-margin business than a physical trading operation, but also has a lower level of overhead and personnel costs.
Bank of America, which inherited a larger commodity business after buying Merrill Lynch in 2008, has not done any physical oil trading for several years, the source said. Morgan Stanley (MS.N) is in the process of selling its large physical oil trading division to Russia’s Rosneft, while other banks such as Barclays (BARC.L) have opted to get out of commodities entirely.
Reporting by Anna Louie Sussman; editing by Jonathan Leff, Leslie Adler and Richard Chang